Trimming customer service costs while boosting customer satisfaction -- and hence loyalty -- is challenging in the best of times. During a downturn, performing this balancing act becomes both more difficult and more critical to achieve.
Many companies don't even try. They respond to straitened economic circumstances by cutting service costs and sacrificing service quality in a quest to hit short-term financial targets. When the economy starts recovering, they beef up investments in customer service to win back customers. And they find it's too late.
ATTAINING SERVICE EFFICIENCY AND CUSTOMER SATISFACTION
Managers often view service efficiency and customer satisfaction as incompatible goals. But they don't have to be. By maintaining customer service during a slowdown, companies with a strong core of loyal customers position themselves for growth and gain a competitive edge.
Our research shows that companies with superior service operations have higher customer loyalty scores, which correlates with sustained growth. How do they do it? They invest in learning about customer needs and then translate those insights into innovations that continuously improve services. They decide what to focus on, they measure it, and they create business processes to manage those metrics over time.
THREE PRACTICES THAT STRIKE AN OPTIMAL BALANCE
From our work with clients, we've identified three practices that help companies balance efficiency and quality in their service operations:
1. Segment service levels.
When electronics retailer Best Buy decided to emphasize service and make it a key part of its products' value proposition, the company retrained store employees so they could recognize and better serve different customer segments. In stores that skewed toward upscale suburban customers, staff were hired and trained to serve this customer base in ways that are subtly different from the service approach used in stores that drew younger, more urban customers. Staffing was increased during peak shopping hours so that higher-value customers could receive focused assistance.
Best Buy's decision to differentiate service levels and match them to different customer segments has paid off, boosting store sales while keeping a lid on costs. By judiciously reducing staffing during off-peak times, Best Buy can afford to beef up employee hours during the busiest periods. To serve customers faster and with more flexibility, the company equipped employees with two-way radios to improve communication across the large Best Buy selling floors.
All these actions have gained Best Buy higher customer satisfaction ratings -- and higher sales. The company constantly measures the cost of delivering different service levels against the value provided by the corresponding customer segment -- and just as constantly searches for ways to reduce inefficiencies.
2. Strive for consistency over several budget cycles
After FedEx completed a number of strategic acquisitions beginning in the 1990s to diversify and expand its portfolio, the company institutionalized what it calls "The Purple Promise" -- a pledge to put the customer first on every interaction.
To ensure consistent levels of service across its subsidiary companies, FedEx established FedEx Services to give customers access to the full range of FedEx transportation, supply chain, e-commerce, business and related information services. By integrating sales, marketing, information technology, pricing and customer service support for the global FedEx brand, FedEx Services has been able to better coordinate its revenue and yield management programs across the enterprise. The strategy of centralizing customer-service functions has helped FedEx attain and maintain customer loyalty scores that are among the highest in the industry.
3. Share accountability and continually look for efficiencies.
When a leading insurance company that we'll call InsureCo attempted to drive down costs per call by using automation to answer more calls, it actually found its costs going up, not down. The culprit? A lack of accountability.
An analysis of the existing call center plan found that nearly 100 percent of the cost targets were dependent on technology upgrades and improvements, yet no one in information technologies nor any managers in the customer service organization were accountable for realizing results from the IT investments. What InsureCo needed was good old-fashioned management oversight and process reviews.
InsureCo overhauled its call center plan based primarily on a set of non-IT-dependent initiatives to immediately reduce costs per call. In many instances, 85 percent to 90 percent of all calls were answered in 30 seconds, significantly faster than InsureCo's targeted service level of 80 percent. So the company increased its call response time to match its service level target, thereby saving on labor costs. The company made a smart trade-off here. Its move didn't improve customer service but neither did it significantly diminish it, and the company saw no effect in its customer satisfaction scores.
The results from InsureCo's efforts to share accountability and reduce inefficiencies were dramatic: The company cut costs by 15 percent while handling 15 percent more calls, which translated into $35 million annually in cost savings.
(Mark Kovac is a Bain & Company partner based in Dallas. Josh Chernoff is a partner based in Chicago. Jeff Denneen and Pratap Mukharji are partners in Atlanta.)